Offshore could be beating U.S. shale

Some break-even costs for offshore developments are about $10 per barrel lower than in U.S. shale basins, a new report finds.

Some offshore developments could have a market edge over U.S. shale oil, a new report finds. File photo by num_skyman/Shutterstock

Jan. 23 (UPI) -- Some offshore developments outside of North America may be gaining a competitive edge over U.S. shale, sector analysis found.

U.S. shale oil developments are expected to push total U.S. production above 10 million barrels per day this year for an all-time record that, if forecasts are accurate, would put the United States in the same league as Saudi Arabia.

Deep in the exploration and production side of the energy sector, the Westwood Global Energy Group said its team in Houston found the consumption of the sand used for hydraulic fracturing operations hit a new high by the second quarter of last year and the shale sector as a whole was "running in overdrive."

Shale oil developments were handicapped somewhat by a market downturn that reversed course early last year, but are now thriving on oil priced near $70 per barrel. In its latest analysis, Westwood said the offshore sector is also capitalizing on market recovery.

By its read, the offshore market has too much capacity built in for rigs and construction vessels, but that could work out well for exploration and production companies looking to start new deepwater projects.

"Exploration and production companies are starting to report that some deepwater projects have more favorable project economics than shale," its report read.

Consultant group Wood Mackenzie said earlier this month it was the deep waters of the Atlantic basins like Guyana and the U.S. Gulf of Mexico that were the "sweet spots," where commercialization will be quick and most companies can break even with a price of oil below $50 per barrel.

In Guyana last year, Hess Corp. and Exxon Mobil announced a final investment decision for the offshore Liza oil prospect. The development cost of $3.2 billion is considered relatively low for a field that could yield 450 million barrels of oil after first oil is on stream by 2020.

Westwood said the Guyana break-even was closer to $35 per barrel, compared with the $45 per barrel needed in the Delaware shale basin in the United States.

The price of Brent crude oil, the global benchmark, was trading near $70 per barrel early Tuesday. Last week, however, drilling services company Baker Hughes reported the North American rig count, a barometer for exploration and production work, moved lower.

Paul Hickin, the oil director at commodity pricing group S&P Global Platts, told UPI that U.S. shale oil producers have grown accustomed to operating at lower prices, but they might not be operating at a profit.

"I think we have to be careful about getting carried away," he added. "Shale forecasts are ratcheting up far faster than actual production."